nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒05‒19
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Industry Restructuring, Mergers, And Efficiency: Evidence From Electric Power By Kwoka, J.; Pollitt, M.
  2. Vertical Integration and Firm Boundaries : The Evidence By Lafontaine, Francine; Slade, Margaret
  3. Simple-Offer vs. Complex-Offer Auctions in Deregulated Electricity Markets By Rimvydas Baltaduonis
  4. Spatial asymmetric duopoly with an application to Brussels’ airports By Fay Dunkerley; André de Palma; Stef Proost
  5. The Determinants of Pricing in Pharmaceuticals: Are U.S. Prices Really Higher than Those of Canada? By Antonio Cabrales; Sergi Jiménez-Martín
  6. Multimarket Contact in Pharmaceutical Markets By Javier Coronado; Sergi Jiménez-Martín; Pedro L. Marín

  1. By: Kwoka, J.; Pollitt, M.
    Abstract: This paper analyses the performance impact of the merger wave which took place in the US electricity industry during the period 1994-2003. It does so by analyzing the impact on operating and total cost in electricity distribution. While there are past studies of efficiency and productivity effects, as well as of prices, profits, and other outcomes, this study differs in several ways. First, the database consists of many merging and non-merging firms, rather than only a few on which to base inferences. Second, all of these mergers arise in a single industry, greatly facilitating controlled comparison. Third, we have data on the several years of pre-merger and post-merger efficiency of the specific merging units, unlike virtually all past studies. And finally, we employ a powerful nonparametric technique - data envelopment analysis - to measure the efficiency of each operating unit. The results indicate that electricity mergers are not consistent with improved cost performance.
    Keywords: mergers, efficiency analysis, electricity distribution, data envelopment analysis.
    JEL: L25 L43 L94
    Date: 2007–05
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:0725&r=ind
  2. By: Lafontaine, Francine (Stephen M. Ross School of Business, University of Michigan); Slade, Margaret (Department of Economics,University of Warwick)
    Abstract: Understanding what determines firm boundaries and the choice between interacting in a firm or a market is not only the fundamental concern of the theory of the firm, but it is also one of the most important issues in economics. Data on value added, for example, reveal that in the US, transactions that occur in firms are roughly equal in value to those that occur in markets. The economics profession, however, has devoted much more attention to the workings of markets than to the study of firms, and even less attention to the interface between the two. Nevertheless, since Coase’s (1937) seminal paper on the subject, a rich set of theories has been developed that deal with firm boundaries in vertical or input/output structures. Furthermore, in the last 25 years, empirical evidence that can shed light on those theories has been accumulating.
    Keywords: Vertical integration ; firm boundaries ; vertical mergers ; firms versus markets
    JEL: L22 L24
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:wrk:warwec:799&r=ind
  3. By: Rimvydas Baltaduonis (University of Connecticut and George Mason University)
    Abstract: In my recent experimental research of wholesale electricity auctions, I discovered that the complex structure of the offers leaves a lot of room for strategic behavior, which consequently leads to anti- competitive and inefficient outcomes in the market. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. In this paper, using the experimental method I compare the performance of two complex-offer auctions (COAs) against the performance of a simple-offer auction (SOA), in which the sellers have to recover all their generation costs --- fixed and variable ---through a uniform market-clearing price. I find that the SOA significantly reduces consumer prices and lowers price volatility. It mitigates anti-competitive effects that are present in the COAs and achieves allocative efficiency more quickly.
    Keywords: strategic behavior, sealed-bid auction, complex offer auction, electricity, efficiency
    JEL: C72 D4 D61 L94
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2007-14&r=ind
  4. By: Fay Dunkerley (CES – KU Leuven, Belgium); André de Palma (THEMA, Univ de Cergy Pontoise, France & ENPC); Stef Proost (CES – KU Leuven, Belgium, CORE, Belgium)
    Abstract: We study the problem of a city with access to two firms or subcentres (restaurants, airports) selling a differentiated product and/or offering a differentiated workplace. The first subcentre is easily congested (near city centre, access by road), the second less prone to congestion but further away. Both need to attract customers and employees and need to make profits to cover their fixed costs. This is an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. This solution involves excessive congestion for the nearby subcentre. Three stylised policies are studied to address this congestion. The first policy is to widen the congested road to the nearby subcentre. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. The third policy is to provide a direct subsidy to the remote subcentre so that it can reduce its price. We illustrate the theory using a numerical model applied to the two Brussels airports.
    Keywords: duopoly, imperfect competition, congestion, general equilibrium, airport competition
    JEL: L13 D43 R41 R13
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:ema:worpap:2007-14&r=ind
  5. By: Antonio Cabrales; Sergi Jiménez-Martín
    Abstract: This paper studies price determination in pharmaceutical markets using data for 25 countries, six years and a comprehensive list of products from the MIDAS IMS database. We show that market power and the quality of the product has a significantly positive impact of prices. The nationality of the producer appears to have a small and often insignificant impact on prices, which suggests that countries which regulates prices have relatively little power to do it in a way that advances narrow national interest. We produce a theoretical explanation for this phenomenon based on the fact that low negotiated prices in a country would have a knock-on effect in other markets, and is thus strongly resisted by producers. Another key finding is that the U.S. has prices that are not significantly higher than those of countries with similar income levels. This, together with the former observation on the effect of the nationality of producers casts doubt on the ability of countries to purs
    Keywords: Pharmaceutical prices
    JEL: I10 I18 L65
    Date: 2007–04–27
    URL: http://d.repec.org/n?u=RePEc:aub:autbar:697.07&r=ind
  6. By: Javier Coronado; Sergi Jiménez-Martín; Pedro L. Marín
    Abstract: The purpose of this paper is to analyze the effect of multimarket contact on the behavior of pharmaceutical firms controlling for different levels of regulatory constraints using IMS MIDAS database. Theoretically, firms that meet in several markets are expected to be capable of sustaining implicitly more profitable outcomes, even if perfect monitoring is not possible. Firms may find it profitable to redistribute their market power among markets where they are operating. We present evidence for nine OECD countries with different degrees of regulation and show that regulation affects the importance of economic forces on firms' price setting behavior. Furthermore, our results confirms the presence of the predictions of the multimarket theory for more market friendly countries (U.S. and Canada) and less regulated ones (U.K., Germany, Netherlands), in contrast, for highly regulated countries (Japan, France, Italy and Spain) the results are less clear with some countries being consistent with the theory while others contradicting it.
    Keywords: Pharmaceutical prices, Multimarket Contact, Regulation
    JEL: L11 L13 L65 I18
    Date: 2007–02
    URL: http://d.repec.org/n?u=RePEc:upf:upfgen:1033&r=ind

This nep-ind issue is ©2007 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.